Data By Proxy

A fair deal of deceptive gold demand numbers come from the People’s Republic every quarter. The Chinese have an interest in keeping the exact total of gold crossing over the border shrouded in mystery. Its annual gold imports are, in some sense, a guarded state secret.

For this reason, data published by Hong Kong is relied upon to judge (and essentially guess at) overall Chinese gold demand. Obviously, this is still an imperfect proxy. Much of the gold that passes through the incipient Shanghai Gold Exchange comes first from Hong Kong. Over the last year, the pace of gold imports to China had been slowing, though the flow of gold from the West to China, Russia, and India is still a clearly defined trend.

China imported 106 metric tonnes of gold during the first quarter of this year, which is well off its normal pace. However, the latest data show that in December of last year the country brought in 158 tonnes of gold from Switzerland alone.

Chinese Gold Demand

Even with gold prices hovering around a six-week high, gold imports to China are projected to climb by as much as 50% as Chinese investors look for safe havens. The boost is seen especially in investment-grade gold (24 karats). Many gold purchases in China are made up of jewelry, which is often only 18 karats. Thus, if there is a shift toward gold as an investment, the greater demand may not be reflected in the total tonnage of raw gold bullion imported.

In addition to aggressively buying up physical gold that its Western rivals seem all too glad to dump onto the market, China is also nurturing a more sophisticated and developed domestic gold market. It offers an offshore gold investment product denominated in renminbi (yuan), which is a clever way to use gold demand to increase the use of its currency overseas. It has plans two or three years down the road to build a new bonded warehouse to store up to 1,500 tonnes of gold within China’s borders. Beijing still relies on Hong Kong as a gold hub, but this would go a long way toward capturing more of this trade domestically.

Above all else, it’s worth noting that China has room to grow its own sizable gold reserves, which some speculate are about double what is officially reported (over 1,800 metric tonnes). As China continues to employ its gold accumulation strategy while cultivating new ways to leverage its growing clout in the global gold market, the country will command greater attention from traders and investors who are interested in the future demand dynamics for the yellow metal.

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.